The fallout from Russia’s invasion of Ukraine may have put the world on course for a disorderly climate transition scenario, Ravi Menon, chair of the Network for Greening the Financial System (NGFS) has said.
He told S&P Global’s ESG Insider podcast that, as countries seek to cut their dependence on Russian-supplied gas, they are likely to turn to fossil fuels in the short term and then speed up investments in renewable options in the medium term. He said the NGFS is focused on integrating these events into the next round of climate scenarios it is developing.
“In the short-term it will be not climate friendly, but in the medium term it will probably be more climate-friendly than would otherwise have been the case,” he predicted.
The NGFS characterises a “disorderly transition” as a sudden and unanticipated response to climate change that is disruptive but nevertheless sufficient to meet global climate goals. It is distinct from an orderly transition, in which early and ambitious action is taken, or a hothouse world in which governments fail to avert runaway warming.
A disorderly transition is thought to be potentially destabilising for the financial system, as banks and investors could struggle to keep pace with changes in policy, technology or consumer behaviour. They may also find themselves exposed to firms with business models not built around the economics of an accelerated low carbon transition.
The European Central Bank has previously warned about increased financial stability risks arising from the war in Ukraine and increased energy and commodities prices. Its most recent financial stability review raised the possibility of increased corporate defaults and weaker bank profitability.
Menon also spoke about the powerful enabling role that the financial system can play in greening the economy. He said that although central banks are not the key “needle mover”, the challenge of climate change is so pervasive that it requires a whole-of-society response.
Menon is also managing director of the Monetary Authority of Singapore (MAS). He told the podcast about the work the authority is doing to prepare the country’s financial system for the net-zero transition, describing it as broadly in line with other leading regulators. He said the MAS is finalising an industry-wide climate stress-test to be conducted later this year, which it hopes will prompt institutions to take action on climate transition plans.
He touted Singapores’ first centre of excellence to drive research into talent in green finance, established by MAS, warning that the world is likely to face a severe shortage of expertise in this area in the coming years.
This page was last updated August 17, 2022
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